You are here

OpenMarket: Trade and International

  • Thorny Issues in Trans-Pacific Partnership Negotiations

    August 13, 2015 1:16 PM

    Trade negotiators from 12 countries left Maui at the end of July 2015 without reaching a final agreement on the Trans-Pacific Partnership (TPP), a massive trade pact among countries that represent about 40 percent of the world economy. The 12 countries negotiating TPP are the United States, Japan, Mexico, Canada, Australia, Malaysia, Chile, Singapore, Peru, Vietnam, New Zealand, and Brunei Darussalam.

    Stymying further progress on the agreement are several tough issues that won’t be easy to reconcile as several countries dig in to protect certain sectors of their economies. Further complicating negotiations are up-coming October elections in Canada and the desire on the part of the U.S. to finalize the deal before 2016 presidential election campaigns go into high gear.

    It’s ironic that this deal—portrayed as an agreement to open important Pacific Rim markets—is being held up by traditional protectionist tactics as countries seek to protect key industries.

    One of the thorny issues for the U.S. and New Zealand is Canada’s supply management program for dairy products, poultry and eggs. Besides trying to balance domestic production with domestic demand and providing price supports, Canada’s program imposes quotas on dairy imports and stiff tariffs over those quotas. For example, tariffs on butter can be as high as 299 percent.

    New Zealand and the U.S. would like TPP to provide better access to that Canadian dairy market. As a small country, New Zealand is nonetheless a major dairy exporter, and dairy products account for about 30 percent of New Zealand’s merchandise trade exports. But with Canada’s Prime Minister Stephen Harper facing what could be a tight reelection, Canadian negotiators might be reluctant to alienate the domestic dairy industry. On the other hand, Harper does want the trade deal and may have to compromise to reach that goal, as New Zealand had been adamant in holding to its position.

  • CEI and Allies Submit Evidence to Australian Senate Inquiry on Credit Cards

    August 10, 2015 1:20 PM

    Today, CEI and other members of the International Alliance for Electronic Payments joined the Australian Taxpayers Alliance in submitting evidence to an Australian Senate inquiry into credit card interest rates and related matters. CEI has long been concerned about the effects of regulation on the payments card industry and helped found the International Alliance in order to help ward off these harmful effects all over the world.

  • Ten Weak Reasons to Support Ex-Im

    July 27, 2015 1:45 PM

    Rep. Carolyn Maloney supports reauthorizing the Export-Import Bank, whose charter lapsed on June 30. She recently took to the Huffington Post to give 10 reasons to support Ex-Im. Here’s reason 1:

    Exports play an important role in the U.S. economy, supporting nearly 12 million jobs in 2014.

    Ex-Im did about $27.5 billion worth of business last year, amounting to about 1.2 percent of America’s $2.35 trillion in total 2014 exports, and less than one-sixth of one percent of America’s $17.7 trillion 2014 GDP. From this, Rep. Maloney concludes that Ex-Im supports nearly a tenth of the entire U.S. workforce!

    Also note the clever use of phrasing here. Rep. Maloney and other Ex-Im supporters always talk about jobs “supported,” and never jobs “created” or “saved.” This is on purpose. Such phrasing is vague enough to make Ex-Im look good without having to prove that it’s actually doing good. This is important, since every time Ex-Im helps Boeing sell a jet to a foreign airline, it hurts domestic airlines and eliminates jobs there. I am not aware of any official Ex-Im statistics on how many jobs the agency has un-supported.

    Reason 5 is similar, and reads in part: 

    Since 2009, our Ex-Im Bank has supported an estimated 1.3 million jobs.

    That averages out to 260,000 jobs supported per year (again, note the phrasing), or about one-sixth of one percent of the total year-end 2014 labor force, according to the Bureau of Labor Statistics. Since Ex-Im’s annual support is equivalent to only $2,300 per job supported, most of those jobs would still exist without Ex-Im—in fact, since Ex-Im is largely redundant with private sector financing, its actual amount of net support created is far smaller than even its own meager statistics show. Factor in the jobs Ex-Im unsupports, and Ex-Im is almost certainly a net drag on the U.S. economy.

    Rep. Maloney’s other reasons are of similar strength.

  • Ex-Im Expired: Now What?

    July 15, 2015 10:46 AM

    Two weeks ago, the Export-Import Bank’s authorization lapsed. The agency remains open, but is not allowed to consider new loans or other projects. It may only maintain its existing portfolio, which will wind down over a period of several years.

    In an op-ed over at Inside Sources, I take a look at what’s next for Ex-Im:

    Rarely does a federal agency shut its doors — the Civil Aeronautics Board closed in 1985, and the Interstate Commerce Commission followed suit in 1995, but that’s about it. Twenty years later, will Ex-Im add its name to this short list? What will happen then? Should the agency be revived?

    The short answers are that nobody knows if it will actually close, not much will happen in the short run either way, and the agency should not be revived.

    In the time since I wrote the piece, it’s begun to look like Ex-Im reauthorization may be folded into the highway bill extension Congress will consider later this month, but nothing is concrete yet.

    Read the whole thing here.

  • Advocating Free Trade, Not Foreign Aid for the World's Poverty

    July 1, 2015 3:25 PM

    A Review of the Poverty Cure Documentary Series

    Poverty Cure is a six part documentary series directed and hosted by Michael Matheson Miller, produced by Acton Media, and was released on December 5, 2014. The film is a project of Poverty Cure, a Christian-based organization that puts together a network of institutions in an effort to defeat poverty through the means of capitalism and entrepreneurship.

    This documentary series is primarily targeted at Christians who are presumably active in their faith-based communities. It proposes that Judeo-Christian values can serve as a beneficial moral code for entrepreneurs and businessmen. The series argues that this moral code will guide and serve as the means for businessmen to run companies effectively to serve the impoverished by providing them work and a place to start businesses of their own.

    The Christian values are reiterated throughout the entire series, and at times the rhetoric distracts from the series’ main argument. However, once the viewer is aware of the organization’s values and their target audience, the Judeo-Christian language seems more reasonable.

    That aside, the series argues its case successfully, convincing at least this viewer that the developing world does not need charity, foreign aid, or philanthropy. Further, it demonstrates that developing countries and poverty-stricken populations require a free market society, open trade, and accessible investment opportunities.

    From the start, the series does well to discredit celebrity campaigns that “combat poverty,” massive foreign aid campaigns, and substantial corporate donations, which is also known as “dumping.” We see that these actions cripple local economies of developing nations. The series uses the example of a Rwandan farmer who provides his local market and community with eggs. When an aid campaign group decided that they were going to continually donate eggs to the village, they effectively drove the farmer out of business. The community then became dependent on egg donations. Consequently, when the aid campaign stopped donating eggs, the community was unable to react to the change and was forced to import eggs from another region. While the intentions may be good, they can actually cause local businesses to lose their customers, subsequently crippling the local economy by stagnating or even reversing business growth.

    The series admits, correctly so, that people start these campaigns because they have good hearts and good intentions; they want to end suffering in the world and help those who are impoverished, so they think the easiest thing to do is donate goods and services to these people. However, Poverty Cure makes it evident that these strategies do not work, and can actually do more harm to the community.

  • 5 Reasons Why It's Time to Close the Ex-Im Bank

    June 29, 2015 2:43 PM

    The clock is ticking on the Export-Import Bank’s upcoming reauthorization. For the larger part of the past eight decades, Ex-Im’s existence has continued unchallenged and generally conceded as just another example of “the way Washington works.” However, this year is different. Bipartisan support for closing Ex-Im, and ending its crony practices, has grown to an all-time high. Here are the top 5 reasons why it’s time to finally close the Ex-Im for good.


    Ex-Im’s policy is to secure financing for companies that might not be able to secure it in the open marketplace. But that actually isn’t Ex-Im’s only mandate. Ex-Im only secures financing when the benefiting company has a high likelihood of paying back the debt. Companies that meet the former criteria may fail to be eligible under the latter, and vice versa. Companies with the high likelihood to pay back debt probably wouldn’t run into problems securing financing in the first place. In theory and in practice, Ex-Im’s dual mandate is nothing short of a massive contradiction.


    There’s a reason Ex-Im is called “Boeing’s Bank”. It’s because over 40% of Ex-Im’s business “invests” in Boeing. In fact, the top 10 companies financed by Ex-Im swallowed up 76% of its entire 2013 budget. Sound like cronyism to you too? Ex-Im may call itself “pro-business,” but pro-market advocates know what’s behind the curtain.


  • Reasons to Oppose the Ex-Im Bank, Part 8: Back Door Bank Subsidies

    June 24, 2015 10:55 AM

    The Export-Import Bank’s charter expires on June 30. This series of posts makes the case for closing Ex-Im, one argument at a time. See also parts 1, 2, 3, 4, 5, 6, and 7.

    The United States, along with many other countries, is adopting the Basel III capital standards for banks. The Basel standards are complicated, and they require different levels of capital financing (i.e., stock ownership) for different kinds of assets. The general rule is that more risky investments are required to be financed with a higher proportion of capital. Less risky assets have lower capital standards. In other words, the required mix of liabilities—owners’ equity and borrowing—used to finance assets changes with the expected risk of those assets. 

    Since the Basel standards were written by governments with some help from the world’s major banks, they naturally give favorable treatment to government debt held by banks. In fact, the risk-weighted capital requirement for U.S. Government debt or U.S. Government-backed debt is zero. If a bank holds nothing but U.S. Government debt or U.S. Government-backed debt, it could in theory be financed with no capital under the risk-weighting approach! This is limited in practice, however, by additional leverage-based capital requirements that do not use risk weights. Regardless, the Basel III standards clearly give banks an incentive to invest in more government debt and government-backed securities then they would without this preferential treatment. By investing in government-backed debt, banks can artificially increase their profits per unit of ownership (return on equity). 

    Enter the Ex-Im. If a bank makes a loan to a foreign firm to buy U.S. products, Ex-Im can step in and guarantee that debt. The full faith and credit of the U.S. government attaches to Ex-Im guarantees, eliminating any commercial or other risk the bank has taken on. Courtesy of Ex-Im, the bank now holds a risk-free asset with a greater return than other risk-free assets. In addition, the Basel rules let the bank be funded with less capital because of the government’s support for the Ex-Im-backed loan. That lets the bank generate higher profits relative to its stock, artificially boosting bank owner profits by putting taxpayers on the hook if the loans go bad. 

    In this way, the Export-Import bank is a corporate welfare program not just for exporters, but also for banks.

  • Reasons to Oppose the Ex-Im Bank, Part 7: Mercantilism

    June 23, 2015 6:55 AM

    The Export-Import Bank’s charter expires on June 30. This series of posts makes the case for closing Ex-Im, one argument at a time. See also parts 12345, and 6.

    Many people believe U.S. companies should export as much as possible, and buy imports only when necessary. Adam Smith called this balance-of-trade obsession “mercantilism,”acidly noting in The Wealth of Nations that “in the mercantile system, the interest of the consumer is almost constantly sacrificed to that of the producer.”

    Or, as Milton Friedman put it more recently, “imports are the goods and services we get to consume without having to produce; exports are the goods and services we produce, but don’t get to consume.”

    Right now, the U.S. runs a current account deficit, popularly called the trade deficit, of $40.9 billion. That means Americans are importing more than they export. Trade balancers would instead prefer a current account surplus. A major part of the Export-Import Bank’s mission is to move the trade balance in that direction.

    As it turns out, there is an easier way to shift America’s balance of trade towards exports that does not require an Export-Import Bank at all. First, fill a container ship with American-made goods. Then, send it out to sea. Once it leaves U.S. territorial waters, the goods count as exports in official statistics.

    Before the ship reaches port overseas, have the crew sink the ship (and escape safely, of course). As far as U.S. trade balance statistics are concerned, the best place for all those goods is the ocean floor. That way they cannot be exchanged for imports.

    The point is that exports are not automatically a good thing, and the Export-Import Bank’s mission in this regard is misguided.

  • Reasons to Oppose the Ex-Im Bank, Part 6: Ex-Im's Strange Dual Mandate

    June 22, 2015 10:34 AM

    The Export-Import Bank’s charter expires on June 30. This series of posts makes the case for closing Ex-Im, one argument at a time. See also parts 1234, and 5.

    One plank of the Export-Import Bank’s mission is to give financing to companies that might not be able to get it from the private sector. But another plank requires Ex-Im to keep its risk in check by only making or backing loans it is confident will be paid back. Both planks sound reasonable on their own, but in practice they contradict each other. This makes it difficult, if not impossible, for Ex-Im to be an effective contributor to the financial system.

    If private sector banks are unwilling to lend to a company, it is probably because those banks don’t expect to get their money back. Prudence dictates that Ex-Im also stay away from such a risky investment, despite its mandate to provide financing where the private sector won’t.

    A different company may look like a solid investment, with very little risk of default. This company certainly meet’s Ex-Im’s risk management criteria, and would qualify for Ex-Im financing. But this company will also have very little trouble securing private sector financing, leaving no market failure for Ex-Im to correct.

    At the very least, the Export-Import Bank needs to refine its mission in a way that is logically consistent. Its current dual mandate simply will not do. Better, Ex-Im should close up shop and leave risk evaluation to companies that have their own money at risk, rather than ours.

  • Reasons to Oppose the Ex-Im Bank, Part 5: Corruption

    June 19, 2015 2:07 PM

    The Export-Import Bank’s charter expires on June 30. This series of posts makes the case for closing Ex-Im, one argument at a time. See also parts 1, 2, 3, and 4.

    When government has a lot of money and power, it is natural for people to curry its favor. It is just as natural for those wielding money and power to use it for personal gain. The Export-Import Bank provides numerous real-world examples of this human frailty. Last year, The Wall Street Journal reported that four Ex-Im employees have been removed or suspended in recent months, “amid investigations into allegations of gifts and kickbacks.”

    Johnny Gutierrez, an Ex-Im employee, was one of the four, and recently pleaded guilty in court to accepting $78,000 in bribes from an executive of Impex Associates, a Florida-based construction equipment manufacturer that has received Ex-Im financing on multiple occasions. The other cases involve two “allegations of improperly awarding contracts to help run the agency,” and another employee who accepted gifts from an Ex-Im suitor. A spokesman responded to the allegations by drily noting that "the Export-Import Bank takes extremely seriously its commitment to taxpayers and its mission to support U.S. jobs."


Subscribe to OpenMarket: Trade and International